The picture is the Carbon Dioxide Molecule. Obviously, not made to scale. (Picture: Michigan State University)

This post will be a bit jumbled and out of chronological order, I’m sure. There are about a billion posts out there about taxing carbon, cap and trade, and Waxman-Markey. Just trying to recap some highlights the past couple weeks as the blogosphere (particularly Jim Manzi and Kevin Drum) have had a lot to say.)

1) Reasonable people can disagree over whether cap-and-trade or a carbon tax are the “better” policy.
2) It is not true that either has significant advantages over the other.
3) There is only one plan with a serious chance to get through the Congress in the near term.
4) So if you are out there arguing that we should really be adopting a carbon tax rather than cap-and-trade you’re undermining that best chance at a carbon price law for at most a slight improvement in policy.
5) Given the stakes, you, arguer, should be shouted down.

But there’s one general point about the debate between carbon taxes and cap-and-trade that I want to make directly. Namely this: it’s an unfair fight.

Here’s the thing. Cap-and-trade is a real-world program for reducing pollutants. We used it successfully with sulfur emissions in the 90s. Europe is already doing it with carbon. The northeastern states are doing it with RGGI. The Waxman-Markey bill is a real piece of legislation that’s hundreds of pages long and festooned with a hundred different compromises that will (we hope) allow it to survive the legislative sausage grinder.

I’d put it this way: It’s true that the carbon tax I would design would be better policy than the cap-and-trade program congress is designing, but by the same token the cap-and-trade program I would design is better than the carbon tax law congress would right. Congress is an inherently problematic institution, populated by flawed human beings who are primarily accountable to the short-term desires of narrow interest groups. Consequently, it’s a rare day indeed when a congressional process results in an optimal policy outcome. But that’s just life. There’s no sense pretending that if advocates took a different approach that the inherent limits of politics would be transcended.

A revenue-neutral carbon tax is superficially appealing. It sounds like something as close to a free lunch as we offered in this fallen world. But like most free lunches, it turns out to be expensive.

The most important point is that revenue neutrality is most likely a mirage. We would have to maintain the carbon tax for decades in order to generate the consumption reductions that advocates argue will occur, but FICA rates aren’t static over decades. In 1950 the FICA rate was 1.5%; by 1970 it was 4.8%; by 1990 it had risen to its current rate of 7.65%. It has been stable for about two decades, but meanwhile the programs that it (in theory) funds are in crisis.

The CBO releases a paper on climate change. Cowen has thoughts. Patrick Appel at Sully’s place comments on the whole debate about the GOP bill and the CBO paper:

That said, it’s clear that legislators on both sides like to pretend that their chosen global warming plan will be cheap or free. They might be a bargain in the long run compared to the havoc global warming will wreak, but both plans constitute a massive new tax. There is no hiding that. And unlike a new entitlement – which voters grow accustomed to and will fight strongly against cutting – either global warming plan is simply an attempt to slow the rate of carbon emissions and maintain the status quo or improve it slightly. Even if the Waxman-Markey cap and trade bill passes, I wonder whether it will be vulnerable to political attacks for this reason – especially in its current form.